Practical Advice

Angel investors: An honest guide to finding & working with individual investors

Practical Advice

Angel investors: An honest guide to finding & working with individual investors

Words Founders Factory

April 18th 2023 / 8 min read

Early stage founders need all the support they can get. Sourcing financing, building a network, finding advisors and top talent to build their company—all things that can help your business go further, all take a considerable amount of time and effort.

There’s one type of investor who can provide many of these in one go to founders—angel investors. While they mostly participate in the same venture rounds deploying cash on the same terms often as other VCs and institutional investors, in reality, they are quite different. Angels invest their own money, usually in smaller amounts and at an earlier stage (pre-seed to series A) and often have different motivations, incentives and requirements for returns compared to VCs.

The differences don’t stop there. Angels act differently, they find deals differently, and they tend to look for different requirements from founders. This often makes seeking investment from angels much more difficult than seeking venture capital money: but in return, they can offer far more than just financing.

We share advice from several seasoned angel investors and founders who are actively working with angel investors on everything from how to find angels, outreach, extracting the most added value, and maintaining a healthy founder-angel working relationship.

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Why seek angel investment?

Capital is a commodity—£s and $s are worth the same amount in your bank account from any two investors you accept it from. What is sometimes overlooked is the strategic value that can be derived from an individual investor’s other experiences, backgrounds and networks that they can apply to support you as a founder.

Certain angels may just be investing for tax reasons (in the UK, individuals have significant incentives to invest through SEIS/EIS tax relief): for that reason, many of these investors may just sign the cheque and walk away. But other angels are more inclined to be hands-on with your business: after all, they are financially invested in your success. In very simple terms—”Angels are advisors who pay to be your advisor,” says Andrea Ianelli, angel investor and investment director at Fidelity. 

In our portfolio we’ve seen three main types of strategic benefits founders can receive from angels, broadly reflected by the different profiles of investors. These broadly come in three types:

  • Industry expertise—someone with career experience & network in your sector

  • Founder experience—someone with experience of building their own business

  • Investment expertise—someone with a strong understanding of & access to the fundraising ecosystem

If you’re able to secure investment from angels, this will add a significant stamp of prestige on your business. Shop Circle co-founder Gian Maria Gramondi, who received investment from a number of top tier angel investors, describes this as a “network effect”. Once you’ve brought in one “super angel” (a particularly active or renowned angel), they can bring a lot of momentum through introductions to other angels, syndicates, or other VCs. Angels are much more inclined to work with you once you’ve secured financing from other well-respected individuals—it’s almost doing the due diligence on their behalf. 

Angels also invest much more flexibly than institutional investors at this early stage. As sole decision-makers without strict ownership requirements, angels are often more inclined to invest smaller cheques into your business, as well as participating in bridge rounds to enable your company to hit specific milestones. They can help you top up larger rounds; but more importantly, if you’re valuing your angels for their strategic benefit, they’re bringing in more added value. 

That said, it’s no easier to get investors to write a smaller cheque: conversely, those that have the ability to invest $100k+ cheques are more likely to lead without others or even bring their own syndicates.

Angelswhat do you look for in founders?

“Founders who can explain what they're doing in two minutes or less. It sounds simple but it gives me confidence that you know and understand your business, and how to communicate it in the most simple way for all to understand. With a concise pitch I’m confident you'll be able to raise.”

Jasmin Thomas
Founder & Angel Investor

Angelswhat do you look for in founders?

“Founders who show they are aware of their competitors, respectful of them, but not fearful.”

Andrea Iannelli
Angel, Investment Director at Fidelity International

The hard truth of seeking angel investment

Seeking angel investment is very difficult. Since they tend to operate as individuals (only clustering through networks or syndicates), they view returns on an investment-by-investment basis. This means they are far more risk averse, and will therefore be much more selective around where they put their money. Many will only invest if you have also secured lead investment from a VC.

In reality, the best predictors that an angel will invest in your company are:

  • You are related to the angel

  • You have raised from the angel before and made them money

  • You have worked for/with the angel

  • You otherwise know the angel

  • You have a lead investor (institutional seed fund, SEIS/EIS fund, family office, etc) 

There are a number of ways to go about finding angels to invest in your company.

Utilise angel networks. Tapping into these communities can be hugely beneficial. View it like getting through the gatekeepers: once you’ve been approved by their internal due diligence, you get access to a huge network of angels. Angels will be far more likely to invest if they know other angels are doing so too. Some of these ‘brokers’ will take a percentage of your equity—but it’ll certainly be worth it if you can secure investment. 

Utilise your warm networks. If you’re lucky enough to have people around you networked in tech or startups, reach out and ask if they know any relevant angel investors. Use LinkedIn to find mutual connections who might be able to find introductions. That said, cold outreach had a ‘5-to-10% hit rate’, according to Ben Lakey, founder of Syndi Health. 

Leverage the existing warm networks of a pre-seed fund or accelerator, like Founders Factory, who will likely have spent years building up these networks. These programmes or platforms may also host pitch events, where they’ll invite their network. If they’re targeted at the right people they can be a very efficient way to get in front of a high volume of angels at the same time. “You stand a much higher chance of securing investment from angels if you’ve actually met them,” says David Hickson, Chief Strategic Development Officer at Founders Factory. 

Other tactics for outreach might include:

  • Follow investment news, and track which angels invest in startups in your sector

  • Use LinkedIn to search for angel investors who are more public (that said, not many will have ‘angel investor’ in their title so it may be harder)

  • Identify future clients or customers, find people who might have a relationship or contact with those businesses

  • Reach out to thought leaders in your space

Angelswhat do you look for in founders?

“Founder-market fit. A reason why they are solving this specific problem, and who have meaningful access to the communities they are serving.”

Sarah Drinkwater
Serial angel investor

Angelswhat do you look for in founders?

“I'm looking for various proof points—proof of execution, proof of traction, proof that they have managed to get other credible people excited and involved.”

Roxanne Varza
Angel, Director of Station F

Securing investment from angels

Don’t underestimate the amount of time it takes to secure angel investment. Outreach should start around four months before you’re planning to raise, to leave yourself enough time to organically nurture relationships, before you think about asking for money. 

As outlined before—don't start by asking for money, ask for advice. When you meet an angel, talk about the sector you’re working in, the product you’re building, and if they have any specific advice and then follow up afterwards with a view towards building a relationship. Investment should naturally flow from that, at which point they’ll already have a good idea of whether they want to back you or not. David Joerring from Healthkey summarises: “Ask for advice, you might get investment; ask for investment, you might get nothing.”

Try to be as flexible on cheque size where possible. You may set a minimum in your mind, but you should also be willing to accommodate angels who may bring a particular strategic benefit, even if that means accepting a smaller cheque. 

If you are seeking added value (e.g. more than just capital), you should use this opportunity to outline where exactly you are looking for support. “You should informally create a social contract where you know where they’re going to help on your business,” says Sarah Drinkwater, a serial angel investor. 

Key DOs and DON’Ts of working with angels

As earlier mentioned, certain angels will step back once they’ve written you a cheque. But for those that do want to be more hands-on, here’s how to make the most of your angel-founder relationship:

DO

Be communicative. Once you’ve got them to sign the cheque, you will be able to get far more value from your angel investors if they’re in the loop. We recommend founders update their investors monthly or bimonthly, with a couple of bullet points on what you’ve achieved in that period, updates of any goals you’ve set yourself (including data, where necessary), and any areas you’re looking for help in 

In addition to this, take the time to put in meetings with angels, not just for when you have a specific ask, but as a way of keeping the relationship warm. Simone Cimminelli, an active angel investor, keeps 30 minute slots open for founders. “I don’t want to be a source of distraction, but I want startups to be able to come to me with their concerns.”

Be precise. While you should certainly be intentional about getting the most value out of the angels you are working with, you should be clear in what you’re asking of them. Remember the three main categories of angels—industry experts, investment experts, (ex)founders—and make sure you are explicit about what you need, so they know exactly what they need to do to help.

Andrea Iannelli has clear advice on this. “Keep a map of all the angels on your cap table, and keep a note of the value add they bring to the table. Is it expertise in a certain function? Is it their network? Is it their experience?” This will allow you to easily know who to go to with certain problems, and also identify gaps where you may want to seek additional support (or target particular angels). 

Be transparent. This is key to maintaining a strong degree of trust in your investor relationships. If you are struggling, be honest about where you could do with more support, as it’s likely they’re able to help. 

This applies to the long term future of your business too. Be honest about the scale of the opportunity you are presenting: is it a $1 billion business, or is it a $100 million business? There’s no point artificially inflating your potential success: angels will be able to see through this. 

Be flexible. Relating back to how you value the scale of the opportunity, it’s important that you are flexible on the valuation of your business. Sometimes you may need to be flexible to get the best angel investors on your cap table and support your mission. “If an angel is promising to spend significant time opening up doors and getting hands on with the business, and this will be significantly impactful to your business, we’ve seen startups effectively use targeted discounts in ASAs and Safes to incentivise using their option pool,” says Edward Kandel, investor at Founders Factory.

Angelswhat do you look for in founders?

“Founders who are connected, who already have a network or are actively building one in the space they are working in.”

Omar Daniel
Angel, Investment Lead at Harbr

Angelswhat do you look for in founders?

“Founders who don’t put efficiency ahead of building a relationship."

Simone Cimminelli
Angel, Operating Partner at Exceptional Ventures

DON’T

Be transactional. A fatal mistake founders can make with angels is asking for money off the bat or treating them like they would institutional investors. The reality is that many angels, as they’re investing their own wealth, often look to back founders with whom they’ve built up trust and rapport to cut through the noise of all the opportunities they’re seeing.

Ask too much. You should never be afraid of asking questions: that said, you don’t want to ask too much of your investors. For almost all angels, this won’t be their full-time job. While they stand to gain from your success, their time is limited: and they may likely have other investments to support too. This comes back to precision: be pinpoint in what you are asking, and make sure you are asking it of someone you know can help you. 

Cede control over decision making. While you want angels to be hands-on, there’s a fine line. Founders should be wary of angels who want to come straight in and implement changes to the business. “The best angels care about us, what we’re doing, but they’re not overbearing. They trust us,” says Ben from Syndi. 

Jasmin Thomas, a founder and angel investor, would go even further, insisting that investors are respectful of founders’ time and only respond to requests. “Angels need to leave their ego at the door.”

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